South Africa loses investor confidence

Business leaders are increasingly looking for global opportunities for growth, but not in South Africa, according to the 2015 FDI Confidence Index released this week. According to the 15th annual index from global strategy and management consulting firm AT Kearney, two-thirds of companies plan to return to pre-financial crisis levels of foreign direct investment (FDI) by 2016, but no African or Middle Eastern countries ranked in the top 25 FDI destinations in 2015.

Last year, South Africa ranked 13th in the index. The other African countries included in the survey are Algeria, Angola, Egypt, Ethiopia, Ghana, Kenya, Nigeria, Sudan and Tanzania.

Martin Sprott, principle of AT Kearney Johannesburg, told Fin24 on Tuesday the main reason for South Africa slipping out of the index is the the capital flight to developed markets, as investors move away from emerging markets towards safer destinations for better returns.

“The overall driver is a flight to safety,” he said, adding that “the strong performance of Eurozone countries is driven by the prospect of quantitative easing having the same positive effect on Europe’s economy as it has had on the US economy in the past 4 years”.

“People are moving their capital into markets that are perceived to be more secure – like the EU and the US,” said Paul Laudicina, founder of the FDI Confidence Index and chairperson of AT Kearney’s Global Business Policy Council.

“Against that, emerging markets look more difficult. African growth was substantially driven by resource investments. With lower commodity prices, investments in oil, gas and mining in emerging markets look less attractive. Resource companies have diverted their investments away from new-build and into acquiring existing operations. They have also been negatively affected by stories out of Syria, Iraq and north East Nigeria,” he said.

Sprott said South Africa also has had perception issues driven by lower growth and ratings downgrades by Standard & Poors.

“The energy situation has also affected the public view of the country.”

“Fundamentally, investors require regulatory certainty and an open investment environment. They will wait with investments for more positive conditions.”

Since its inception in 1998, the study has consistently pointed toward top choices globally for foreign direct investment, with FDI destinations ranked in the index receiving the majority of global FDI inflows about a year after the survey results are released.

The index is constructed using primary data from a survey administered to senior executives of the world’s leading corporations. All companies in the survey report global revenue of more than $500m.

The survey was conducted in January 2015 and the index is calculated as a weighted average of the number of responses indicating high, medium, and low likelihood of direct investment in a market over the next three years.